average tax rate

Definition

The total amount of taxes paid by an individual or business divided by taxable income. This rate will vary based on the amount of income received during the taxable period. For example, if Steve paid $3,000 in taxes on income of $25,000, his average tax rate would be 12%. Formula: Paid taxes/taxable income = average tax rate.

Use average tax rate in a sentence

The average tax rate was low enough that we were happy with our present tax situation enough to retain the accountant.

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Because Bill had to pay more taxes this year, despite making the same taxable income this year, his average tax rate increased this year.

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Sue was thinking of moving to a new metropolitan area, but the average tax rate was so much higher there that she would barely make a profit anymore.

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